My article “Valuing Common Stock in Anticipation of a Biotech IPO” appeared in the May 2012 issue of Business Valuation Update, published by Business Valuation Resources. Here are a few takeaways:
• The window for biotech IPOs is open.
• A company’s venture investors are virtually required to invest in the IPO as well. It’s not a liquidity event for the VCs. It’s another financing.
• The SEC requires the company to explain the difference between the estimated offering price and the strike price on its options.
Stock options are an important form of compensation in venture-backed companies. Accounting guidance (ASC 718) requires the issuing company to record the expense associated with each option. The value of the option depends on its strike price relative to the value of the underlying security (common stock). Prior to a public offering, the value of common stock in a private company is an unknown. Nevertheless, with the help of appraisers, companies are ...